News Corporation

Q3 2021 Earnings Conference Call

5/6/2021

spk00: were up 38%. HarperCollins again demonstrated strong operating leverage despite a 15% increase in total costs in part due to royalties and higher production expenses related to the successful top line performance. Margins improved by 3 percentage points. Turning to news media, we continue to remain focused on right-sizing the cost base and moving towards digital within this segment. Revenues for the quarter were $550 million down 25% versus the prior year, of which the impact from the divestment of News America marketing accounted for the majority of the decline. On an adjusted basis, revenues declined only 7%, which is an improvement from the 9% decline last quarter. Decline also reflects the $28 million or 4% negative impact from the closure or transition to digital of certain regional and community newspapers in Australia. Circulation and subscription revenues rose 13% driven by a $26 million or 10% benefit from currency fluctuations, strong digital paid subscriber growth and cover price increases, partly offset by lower newsstand sales related to COVID-19. Advertising revenues decreased $215 million or 50% compared to the prior year, reflecting a $199 million or 47% negative impact from the divestiture of News America marketing and a $23 million or 5% negative impact related to the closure or transition to digital of certain regional and community newspapers in Australia. The remainder of the movement was driven by favourable foreign exchange, partly offset by the continued weakness in the print advertising market exacerbated by COVID-19. Advertising performance was mixed across the regions, with Australia showing moderating declines compared to the second quarter rate, particularly driven by increased retail spendings, while the UK's year-over-year performance weakened, mostly compared to the second quarter, impacted by another lockdown which started at the end of 2020. In the US, the trends remained robust, with the New York Post posting 21% advertising revenue growth, of which digital advertising grew 32%. Segment EBITDA for the quarter was $8 million compared to $24 million in the prior year, due primarily to the absence of the contribution from News America Marketing. Adjusted segment EBITDA increased by $5 million. In our other segment, the third quarter costs were higher than we expected, primarily driven by higher equity compensation due to the rising share price and the initial investment spending related to the implementation of our global shared services initiative. I would now like to talk about some themes for the upcoming quarter. As noted in the past call, forecasting remains challenging given the ongoing global COVID-19 pandemic. At Digital Real Estate Services, national residential listings in Australia for April were up 98% compared to the prior year. While the market dynamics are strong, these growth rates are exaggerated by the severe COVID-19 related declines experienced in April 2020. Please refer to REA's press release and earnings call for more details. At MOVE, we remain very encouraged by overall trends and expect the revenue momentum to continue. We continue to expect additional reinvestments that move in areas such as brand marketing and product development as we focus on gaining market share and expanding into adjacencies. In subscription video services, we have seen broadcast churn trends moderate during April and we remain encouraged by strong OTT demand from KO and Binge. We expect EBITDA results to be challenged, due in large part to the lapping of the prior year cost savings. As a reminder, the prior year's fourth quarter results included $70 million of lower sports programming costs, mainly due to the suspension of sporting events as a result of COVID-19. For the current fiscal fourth quarter, we expect to incur those rights, which will be impacted by the rising Aussie dollar versus the US dollar, as well as some additional costs for further OTT investments. At Dow Jones, overall revenue trends remained favourable compared to the prior year, including strong digital advertising growth. As mentioned last quarter, we expect to reinvest in the business as we focus on driving revenue growth through its digital assets and expect second-half expenses to increase modestly compared to the prior year. In book publishing, overall industry trends remain favourable, but we continue to monitor closely the sustainability of recent consumer spending patterns such as the increase in free time for consumers to read and the increase in the average number of books purchased. We continue to expect performance to moderate in the fourth quarter, in part due to the strong performance in the prior year, which benefited from increased consumer demand at the onset of COVID-19 lockdowns and restrictions, as well as the successful release of Magnolia Table Volume 2. At News Media, we expect continued improvement in the fourth quarter as we lap both the impact from COVID-19 and the sale of News America marketing in May 2020. Cost decline should moderate as we lap COVID-19 saving initiatives as well as the divestment of News America marketing and the closure or digital transition of some of our newspapers in Australia in the fourth quarter of fiscal 2020. We expect overall profitability trends to improve and we expect modest revenue impacts from our new licensing agreements. In our other segment, we expect the fourth quarter cost to increase around $20 million versus the prior year, in part due to the reduction of bonuses in the prior year, higher share price and the cost related to the Global Shared Services Initiative. Our year-to-date free cash flow available was $762 million compared to $63 million in the prior year, benefiting from higher EBITDA, improvements in working capital and lower CAPEX. Some of the working capital improvement is timing related, but we're very pleased with the progress made to date. Also note that the fourth quarter balance sheet will reflect the proceeds from our recent senior notes offering, together with the three recently announced acquisitions, which will impact our interest expense and cash balance. With that, let me hand it over to the operator for Q&A. Thank you.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-